The Photoshop item and fly outs do not appear.
I have version 126.96.36.199 of bridge. Is there an update I am missing?
There's a somewhat common problem where Bridge loses the 'link' to Photoshop. One possible solution is to reset Bridge's (and/or maybe Photoshop's) configuration which I believe is accomplished by holding ctr+alt+shift during program startup (that may not be the exact key combination though). If that doesn't work I think you may have to reinstall; at least, that's how I ended up fixing the problem when it happened to me.
You still won't be able to save your stitched pano as DNG though. The only benefit of running Photomerge on the RAW files is that it eliminates the intermediate step of having to save the individual files as TIFF/PSD (which is nice).